Top-deck Indian IT companies need to rightsize bench size: Experts

Top-deck Indian information technology (IT) services companies need to rightsize their bench strength or utilisation rates to increase efficiencies and prevent layoffs, according to experts.

‘Bench’ typically refers to employees on the company’s payroll but not involved in any active project.

Generally, there has been an increase in bench size and a decline in utilisation rates at the top IT firms. A bench size of 15-20 per cent is considered normal in technology (tech) companies the world over. While other industries have reported single-digit bench sizes, tech companies typically have a larger bench size, ranging as high as 30 per cent at any given point in time, observe experts.

“The next few quarters might have a slight impact on the IT sector due to the existing gap between hiring activities and the availability of active projects, requiring many companies to temporarily restructure and resize their workforce requirements. An important reason behind this is the inflated hiring activities which happened over the past few years, which led to a strong and under-utilised bench strength,” says Yeshab Giri, chief commercial officer, staffing and Randstad Technologies, Randstad India.

IT companies take a three-pronged approach to optimise their bench, says Abhisek Mukherjee, partner, YCP Auctus, a management consulting firm.

“One, they delay the joining of freshers and slow down hiring. Two, they make appraisals harsher, leading to natural attrition. Three, by accelerating training and reskilling the top talent on the bench,” he says.

The utilisation rate (excluding trainees) at Infosys for the 2022-23 (FY23) January-March quarter (fourth quarter, or Q4) reduced to 80 per cent, from 87 per cent in the same quarter last year.

“You are sitting with 80 per cent utilisation, whereas you want to be at much higher levels and the pyramid is not as efficient because you had to get talent from anywhere when the market was hot,” said Nilanjan Roy, chief financial officer, Infosys, in an analyst call after Q4FY23 earnings.

IT companies struggle to maintain optimum utilisation rate as it is like a double-edged sword. It needs talent on the bench so that they can be readily deployed when projects come in. Until then, they remain non-billable resources. 

Wipro’s net utilisation for Q4FY23 stood at 81.7 per cent, lower than the 85.2 per cent reported in the same quarter last year.

“On utilisation, we want to continue to stress on internal talent build-up as opposed to buying up talent, and as a result, we had higher talent, including next-generation associates. The focus in the current quarter and the future quarters will be to make sure that whenever demand comes in, we first give priority to internal fulfilment. While we have already seen some utilisation improvement, we will keep pushing it more aggressively to get more out of it and staff projects from inside,” says Amit Choudhary, chief operating officer, Wipro.

Experts believe a large bench can result in layoffs in the quarters to come.

“Due to uncertainty in the global markets, major IT companies are faced with reduced spending on IT and downsizing of the project scope. Because of this, there has been an increase in bench resources, resulting in reduced company efficiency. The current surplus of bench resources poses a risk of potential layoffs if suitable projects are not secured in the next few months,” says Anup Menon, vice-president-IT staffing, CIEL HR Services.

To address this challenge, IT services companies can prioritise rightsizing their bench strength.

“Companies can achieve this by focusing on upskilling and reskilling existing employees to align their skills with current market demands. This enables flexibility in deploying resources to different projects based on skill areas that are in demand,” adds Menon.

Notwithstanding a large bench strength, the Indian IT sector will continue to grow in 2023, due to an increased demand for cost-effective skilled talent by global giants that are looking to outsource a significant chunk of their business to India.

“With a strategic focus on optimising existing resources and harnessing bench strength, companies can navigate through uncertain times while remaining agile and adaptable,” adds Giri.